Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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21/04/2010
Editor's view: 22 April 10
With the UK election approaching fast, the future of local government remains central to the campaign. All three parties – concerned as much with the deficit and slashing the civil service wage bill, as with a US-style bill of states’ rights – appear to suggest that the era of big centralised government is about to be outmoded by a devolved approach. The ‘little people’ will wield power on their home turf; local authorities will become masters of their own destinies.
Who knows if this ‘big society’ approach is campaign spin or a philosophical commitment? But where hedge funds are concerned, UK local authorities have been grasping the nettle for some time. First engaging with funds of hedge funds, then bitten by Madoff, and now skirting around direct investment, these veterans – according to a report in last week’s HFMWeek – are returning to “pre- crisis” levels of interest.
The good news is that these pre-crisis levels could soon be outstripped by larger allocations. Local authorities are looking to follow private funds (see news, p1) and become more fluid in the way they look at the space, as they move to de-risk. According to a number of consultants spoken to by HFMWeek, activity is already picking up, as narrowly defined alternative allocations are slowly being broadened or are spilling over into other buckets.
Traditional equity portfolios will be the first to change. With local authorities looking to mitigate risky pension pots, long/short equity will be built into existing equity baskets – as long as hedge funds are prepared to be flexible on fees, high-water marks and hurdles.
More surprisingly, there is also a growing interest from local authority pots in the bleeding edge of the sector – the alternative of alternatives, if you like. Meaning a measurable upswing in interest for life settlement funds and other insurance-linked products.
Change is definitely afoot. And in a campaign where mentioning anything positive about the financial services sector is a vote-losing taboo, it’s good to see that hedge funds are still winning the local authority vote.
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What's in a name? Petra Capital Management
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Founder Andy Stone, an expert in real-estate debt from his time at Solomon Brothers and Credit Suisse First Boston, would even go on to be described as a ‘rock star’ in the field. His choice of moniker for his hedge fund project certainly lends itself to Stone’s background – and more than just in name and reputation.
Petra is, of course, a historically and archaeologically significant city in Jordan, renowned for its architecture cut into the rock face of its central valley. The rock-carved collection of tombs, temples and waterways is one of Jordan’s most famous symbols and tourist attractions, not to mention a regular in popular culture – featuring in films such as Indiana Jones and the Last Crusade. Unesco, which made the city a World Heritage Site in 1985, described it as “one of the most precious cultural properties of man’s cultural heritage”. Most pertinently though, Petra actually means ‘stone’ in Arabic.
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